Re: British Telecom says bandwidth costs PRICES unsustainable. True! So why haven't they collapsed?

[David Farber <dave () farber net>]

Begin forwarded message:

From: "Bob Frankston" <Bob19-0501 () bobf frankston com>
Date: September 24, 2008 2:22:21 PM EDT
To: <dave () farber net>, "'ip'" <ip () v2 listbox com>
Cc: "'Stan Hanks'" <stan () colventures com>, <nnsquad () nnsquad org>,  
"Dave Burstein" <daveb () dslprime com>
Subject: British Telecom says bandwidth costs PRICES unsustainable.  
True! So why haven't they collapsed?

If there is zero money to be made as a backbone operator why do  
companies insist on being in that business? I agree with Stan that  
this is all a fine mess and even that the reason it’s a fine mess is  
that it’s a fine mess. Where I disagree is accepting that as the only  
option. All I hear is whining.

The problem with the iPlayer story is that we aren’t being presented  
with an alternative model that can deal with the extreme range in the  
value of bits.

But I’ve already written a lot about how this marketplace is broken  
and why we should go to an infrastructure model and how the carriers  
are threatened by abundance lest we have a repeat of the fiber bubble.

The question is why we are focusing on not even current but distant  
past costs as the basis for long term policy, especially if Enron (or  
BT) is telling us the price. I’m willing to pay the bill but I’m not  
willing to pay the price charged by a monopolist who hires accountants  
to support their business models. 10 years is a long time in Moore’s  
law – especially when we have so many dimensions for price/performance  
improvement.

Why should I accept any of these prices as intrinsic and unchanging  
when I’ve seen the cost of home networking go from hundreds of dollars  
for 2400 bps modems to $50 for a multiport a gigabit switch in well  
less than two decades. We’re talking about million to one cost/benefit  
ratios or maybe a lot more as we can use better processing to make  
more effective use of the bits. If you look at the NVidia video  
boards, now being marketed as supercomputer in their own right, we can  
do a lot with each bit.

Is there any router as powerful as a video board in a PC that sells  
for $100 to $500? And why do routers have to be that powerful – can’t  
we just use DLP chips rather than dynamic routing for the backbone of  
the network? After all, if you have can assume the route is stable by  
decomposing the IP address so we separating routing from naming  
wouldn’t routing become dramatically simpler?

Sure one can argue that a backhoe operator is expensive but, as noted,  
we aren’t even using the current fiber to full capacity. And why lay  
fibers in isolation – what is the cost if you’re opportunistic and add  
a little fiber as part of the cost of building new roads?

And rocket scientists – that’s like the phone company saying that they  
can’t afford the cost of operators. So they put a dial on phones. In  
the days when I started doing retail software the culture assumed  
software was expensive and hard to support because no one invested in  
removing all the barriers. Same goes for home networks. I just don’t  
buy this whining. Of course I still don’t understand what is so  
special about rocket science except that NASA has to be extremely  
conservative engineering – the antithesis of the iterative design that  
characterizes computing and the Internet.

And then we loop back and are told about the cost of interconnecting  
with the rest of the network – isn’t this an extreme form of begging  
the question? The price is high because the price is high because … at  
some point you have to reboot to get out of the loop.

No wonder we want to prevent China from competing by using patents as  
a weapon … what if it turns out that all this stuff can be cheap and  
simple? Imagine if 19th century Europe had prevented those Americans  
from making use of the steam engine and all those other disruptive  
ideas?

-----Original Message-----
From: David Farber [mailto:dave () farber net]
Sent: Wednesday, September 24, 2008 12:43
To: ip
Subject: [IP] worth reading British Telecom says bandwidth costs  
unsustainable. True?



Begin forwarded message:

From: "Stan Hanks" <stan () colventures com>
Date: September 24, 2008 11:56:54 AM EDT
To: <daveb () dslprime com>, <dave () farber net>
Subject: RE: [IP] British Telecom says bandwidth costs unsustainable.
True?

Dave,

Saw your note on Farber's list. Unfortunately, Ms. Davis is right on.
*SOMEONE* has to pay for all this...

Having built a number of big networks (MFS Datanet, Genuity 1st
generation, Enron) I can absolutely assure you there is no free lunch.
You can cheat a *little* -- a given business case justifies spending
$x, but if you spend a modest amount more you get double the capacity
(not uncommon) but at no point do you get to "all the bandwidth you
can ever imagine using for one low price paid today".

When we build the Enron network in 1998, we laid 2 conduit, and pulled
a single cable of 144 fiber in one of them. That meant we had upgrade
capacity of pulling an additional two cables of 144 fiber in the first
conduit plus pulling another three in the second. The cost for the
original build was about $150k/route mile. The cost to pull each
additional cable was about $50k/route mile (unless you pulled more
than one at once, in which case the cost of the next one went down to
about $15k/route mile).

OK, let's talk about what that means... of the 144 fiber, you only use
*TWO* per route, one send, one receive, to go into your DWDM gear. One
one route, the Portland-Boise-Las Vegas-Los Angeles route, we spent
over $35mm to light 20 channels of 2.5 Gbs, and would have spent
another $20mm to light the remaining 20 channels available in that
technology footprint.

Toni Mack at Forbes did an article around that time period on the
economics of networks (Mack, Toni, 'Empty Pipes,' Forbes, November 30,
1998, p. 76.). If I recall her numbers correctly, she pointed out that
to acquire an "NFL cities" network, the roughly 25,000 route mile with
six strands of fiber (enough for one running system and four spare
fiber for upgrades or emergencies) would cost about $150mm, but to
light it to full capacity would cost over $5B. Yeah. Billion.

Today, 2.5Gbs is passé, and you'd be insane to light less than a 10Gbs
system today. 80Gbs is possible in some areas, but still not cost
effective. And you can get 80 channels typically, so instead of a
2.5x40 system per pair a decade ago, you can get 10x80 today. And the
equipment costs have roughly halved. Moore's Law, if you will.

And we're still just talking about *TRANSPORT*... you still have to
add routers to that in order to build big IP networks. Alas, the crash
in 2000/2001 cost us our best opportunities to do that cost
effectively -- Hyperchip, Pluris, Avici, Procket are all dead, or
effectively dead. Juniper and Cisco are still locked into a "small
box" mentality where you burn over half your front-side interfaces to
build meshes to support your line side interconnects. And that's
before you get to aggregation and distribution networks. It's just
*ugly*...

And then you get to manpower, and nothing is cheap there. And the true
rocket scientist guys in building and running big networks? They're
all retired, having either made enough in the boom to go fishing for
the rest of their lives or having just flat burned out...

Plus even if you pull that off, you *STILL* haven't solved the problem
of interconnect with the rest of "The Internet" -- and the rules have
changed there dramatically. Instead of "Free Peering", it's all about
parity and advantage. If I don't have something you need, you
typically charge me to take my traffic. And even at the most
aggressive wholesale rates, that's expensive -- rock bottom market
rates are in the $4/Megabit range, and go up from there depending on
volume and how much "pull" you have to offset the "push"...

Back in about 2002 or so, Gordon Cook did a Cook Report on the
economics of big IP backbones, and concluded that even though no one
was actually confirming it, that there was zero money to be made as a
core IP network backbone operator.

Having spent the majority of my time since then looking at "busted
companies" and trying to figure which ones are worth trying to turn
around and which should just be broken up, I have to say that he was
pretty much right. The *LAST* thing in the world I'd sign up for today
is being a broadband Internet service provider. There's just no money
in it.

Stan

-----Original Message-----
From: David Farber [mailto:dave () farber net]
Sent: Wednesday, September 24, 2008 12:11 AM
To: ip
Subject: [IP] British Telecom says bandwidth costs unsustainable. True?



Begin forwarded message:

From: Dave Burstein <daveb () dslprime com>
Date: September 23, 2008 9:33:28 PM EDT
To: dave () farber net
Subject: British Telecom says bandwidth costs unsustainable. True?

Dave
Sally Davis at BT just gave a speech (below) saying BT might have to
block the iPlayer and other Internet video because their bandwidth
costs are unsustainable. Other carriers, like Verizon, say they have
no problem handling the video load, nor expect to have a problem. So
I'm sending her comments over to see if anyone can provide evidence on
why BT's experience is different or that Davis' comments are unproven
hyperbole. It's especially surprising to hear BT's 21st Century
Network, (superbly designed by superb engineers) is inadequate. Key
competitor Sky just pulled off all limits on their $20 broadband
service, saying,"it had invested in creating 'a high-capacity network
that is designed to carry huge amounts of traffic without congestion'"
without traffic shaping. I've written BT to doublecheck the reporter
got it right, but the quotes are pretty clear.

    So am I missing something unique to the UK, or are Ms. Davis'
comments unfounded? Facts welcome.

Wholesale giants say Internet will no longer be free
... the answer could be to restrict "free" access to services like the
BBC's iPlayer that allows users to stream BBC TV content over the
Internet ... "One thing keeps me awake at night. In the immortal words
of Jerry McGuire 'show me the money!'," said Sally Davis, CEO of BT
Wholesale. ... Today there are a number of unsustainable business
models out there, and these need to change, Davis insisted.
... the ISPs are saying "I can't keep increasing the bandwidth for no
more money," Davis said, a situation that will ultimately lead to ISPs
adopting traffic shaping measures and the like to keep control of
bandwidth usage on their networks. ...
"We're going to have some very grumpy people," namely the content
owners and end-users, said Davis.
As such, "we have to find new ways around it... Content distribution
models will play a role in that," Davis said. "We will see those
business models emerge," but more work needs to be done, she cautioned.
... "In the next three years... we will see some different models
emerge," said Davis, a prediction that was greeted with some
scepticism from others in the auditorium.

There won't be just one model, "there will be room for many models,"
agreed Kathryn Morrissey, EVP at AT&T Wholesale.

"Somebody at some point is going to have to pay for [this network
usage]," she said.

http://www.totaltele.com/View.aspx?ID=102600&t=2&en=1




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